CALGARY, Alberta – Freehold Royalties Ltd. (Freehold or the Company) (TSX:FRU) has entered into definitive agreements with two private sellers to acquire high-quality U.S. mineral title and royalty assets located in the Midland basin predominantly in Howard County, Texas (the “Howard County Midland Assets”) for $123 million and in the Eagle Ford basin in Texas (the “Eagle Ford Assets”) for $32 million, both figures net of estimates for exchange rates and customary closing adjustments. Freehold also recently closed its previously announced $19 million acquisition of mineral title and royalty assets in the Midland basin (the “Diversified Midland Assets”) (collectively, the “U.S. Acquisitions”). All references in this news release to dollar amounts are in Canadian dollars unless otherwise indicated.
The U.S. Acquisitions enhance the quality of Freehold’s North American royalty portfolio through further strengthening of our peer leading realized commodity pricing, building on the production growth platform we have established in the Permian basin, and continuing to position our portfolio in the highest quality oil and gas development areas across North America.
The execution of our business strategy is focused on continuously improving both the near-term and long-term sustainability of Freehold’s dividend, maintaining balance sheet strength and flexibility, and retaining the ability to return capital to our shareholders through multiple years of free cash flow generation.
The U.S. Acquisitions are expected to add approximately 1,100 boe/d in production volumes and $31 million in funds from operations in 2023 while growing our U.S. land holdings by approximately 147,000(1) gross acres and 8,000 net royalty acres (“NRA”)(2) (90% mineral interests).
The U.S. Acquisitions will be funded through the utilization of Freehold’s existing credit facility.
Freehold will provide an update on its 2022 guidance and payout levels as part of its Q2-2022 release after market close on August 9, 2022.
Howard County Midland Assets Highlights
- Concentrated mineral title and royalty land position in the core of the Midland basin in Texas, predominantly in Howard County, across 51,000 gross acres (approximately 4,400 NRA) with an average royalty rate of approximately 1.1%
- Q4-2022 forecasted average production of 550 boe/d and 2023 forecasted average production of 750 boe/d is expected to generate funds from operations in 2023 of approximately $23 million
- Howard County Midland Assets are 95% liquids weighted (compared to Freehold’s Q1-2022 average of 60%) providing meaningful uplift to Freehold’s average realized commodity price. Q1-2022 netback of $105/boe for Howard County Midland Assets compares to Freehold’s Q1-2022 corporate netback of $69/boe
- Material near-term growth driven by U.S. publicly listed HighPeak Energy and two private entities (Surge Energy and Bayswater Exploration and Production LLC). This growth is underpinned by 0.9 net line of sight inventory wells (drilled and uncompleted wells and permitted wells) which increases Freehold’s net line of sight inventory wells by approximately 30%
- Strong well performance with average 365-day initial gross production rates of approximately 450 boe/d per well (based on average performance of wells drilled on the Howard County Midland Assets for the period 2019 –2021)
- Significant multi-year inventory with approximately 650 gross future drilling locations identified for development
- Increases Freehold’s Midland basin exposure by approximately 40% on a NRA basis and more than doubles production
- Acquisition has an effective date of June 1, 2022, and closing, which is subject to customary confirmatory due diligence and potential adjustments for any title defects, is expected to occur late August 2022
(1) Represents new gross acreage acquired
(2) NRA represents mineral ownership normalized to a 12.5% royalty; term commonly used by U.S. Mineral companies in describing royalty acreage
Eagle Ford Assets Highlights
- Concentrated mineral title and royalty land position in the core of the Eagle Ford basin in Texas across 41,000 gross acres (approximately 2,500 NRA) with an average royalty rate of approximately 0.8%
- Q4-2022 forecasted average production of 210 boe/d (78% liquids) and 2023 forecasted average production of 250 boe/d (76% liquids) is expected to generate funds from operations in 2023 of approximately $5 million
- Diversified operator mix including exposure to EOG Resources, ConocoPhillips, BP, Devon Energy Corp. and private 1776 Energy Operators, LLC
- Significant multi-year inventory with approximately 700 gross future drilling locations identified for development
- Increases Freehold’s Eagle Ford basin exposure by approximately 15% on a NRA basis and 10% on a production basis
- Strengthens Freehold’s revenue base with Q1-2022 netback of $78/boe compared to Freehold’s Q1-2022 corporate netback of $69/boe
- The effective date of this acquisition is April 1, 2022, and closing, which is subject to customary confirmatory due diligence and potential adjustments for any title defects, is expected to occur mid-September 2022
Diversified Midland Assets Highlights
- Mineral title and royalty land position in the core of the Midland basin in Texas across 220,000(3) gross acres (approximately 1,100 NRA) with an average royalty rate of approximately 0.1%
- 2023 forecasted average royalty production of approximately 130 boe/d (70% liquids) is expected to generate funds from operations in 2023 of approximately $3 million
- Diversified operator mix including exposure to Pioneer Natural Resources Company, SM Energy Company and privates Surge Energy and Endeavor Energy Resources
- Acquisition has an effective date of April 1, 2022, and closed on June 28, 2022
|Summary of U.S. Acquisitions||Howard County
|Purchase Price (4) (millions)||$123||$32||$19|
|Net Royalty Acres||4,400||2,500||1,100|
|2023E Average Production (boe/d)||750||250||130|
|2023E Funds from Operations (5) (millions)||$23||$5||$3|
|(3) 55,440 new gross acres added with this acquisition, existing interest in 164,560 gross acres acquired in 2021 acquisition|
|(4) Howard County Midland Assets and Eagle Ford Assets combined Purchase Price of $155 million is subsequent to including estimated exchange rates and reductions for closing adjustments totaling $10 million.|
|(5) Assumes a West Texas Intermediate price of US$80/barrel of oil and a NYMEX natural gas price of US$4.50/Mcf and an exchange rate of US$0.80 for every CDN$1.00.|